Investment committee members

Lonsec has been working with financial advice firms for over 20 years and during this time we’ve observed a wide range of investment committee structures. The thing that stands out for us is the clear link between high-functioning investment committees and investment outcomes, with people and processes being the most essential elements financial advisers and dealer groups need to get right.

While it’s tempting to think of your investment committee as serving a narrow governance function and therefore requiring a narrow set of skills, the success of your investment committee depends on its ability to draw on a broad set of skills and backgrounds, including those who can bring an outsider’s perspective to your organisation.

So what are the critical things you need to consider to set up your investment committee for success? These are our top three:

1. There must be a critical mass of members

Determining the right size for your investment committee depends on the size of your organization and the types of investment decisions you’re making. For example, if you’re making asset allocation and security selection decisions, you must have people involved in your investment committee with the appropriate skill set and expertise. Having a small, tightly-controlled committee is not appropriate if you’re managing dynamic, multi-asset portfolios or where you’re taking an active role in selecting stocks. Its also essential that your committee allows for a diversity of views and opinions. The more voices you have on your committee, the more robust your investment decisions are likely to be.

2. Clearly defined roles are essential

It’s important for each member of the investment committee to have a defined role to ensure they’re contributing to their full capacity. Each role may be linked to a member’s area of expertise (e.g. asset allocation, equities, fixed income, alternatives, etc.). If there’s a knowledge gap in your investment committee, consider whether you have the internal capability to fill this role or whether it’s worth bringing in the right expertise from outside. Clearly defined roles help to ensure greater accountability and allow members to contribute in ways where they are adding the most value to your investment decisions.

3. External expertise can enhance performance (and credibility)

Most investment committees will draw upon external experts. This may be to fill in a gap in expertise but more importantly external experts will bring different perspectives and may even challenge the views of your organization. Within Lonsec’s own investment committee process we have two external experts on our investment committee who bring significant experience and a different set of skills to the management of our portfolios. Importantly, they contribute an ‘outside’ perspective and fill in potential blind spots. We don’t pretend to know everything, and our clients would probably be concerned if we claimed otherwise. If you’re offering your clients a high-quality, actively managed investment solution, then having external decision makers involved in the process can bring peace of mind and add intrinsic value to your service.

There is no one-size-fits-all approach that can determine exactly what your investment committee should look like, but there are things you can do to improve your investment decision making and the value of your advice. Ensuring that your investment committee consists of people with relevant experience, bring a diversity of views, and have a clear mandate should be at the core of your process. Ultimately, you want to harness the specialized skills of your own investment professionals while balancing these out with a broader range of views and perspectives to avoid group think or missed opportunities. Even the most hardened practitioners need to be challenged once in a while.

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